1

T.Y.B.COM. - BUSINESS ECONOMICS-VI

CHAPTER - 1 : INTERNATIONAL TRADE

MULTIPLE CHOICE QUESTIONS

1. International trade increases the welfare of .

(all participating countries, only exporting countries, only importing
countries, none of the above)
2. International trade increase the of participating countries.
(output, profit, risks, none of the above)
3. According to David Ricardo, international trade is beneficial under
cost. (comparative, absolute, equal difference in cost, none of the
above)
4. David Ricardo’s Theory assumes perfect mobility of labour .
(within the country, between the participating countries, within and
between the participating countries, none of the above)
5. Comparative cost theory is static theory because it assumes .
(there is no qualitative and quantitative change in inputs, labour is
homogeneous within the country, there is no transport cost, none of the
above)
6. Ricardian theory measures comparative cost in terms of .
(man days, money, input costs, all of the above)
7. Ricardian theory assumes that labour is within the country.
(homogeneous, heterogeneous, inefficient, all of the above)
8. Ricardian theory can be extended to . (more than two countries,
only two countries, only to developed nations, only to developing nations)
9. Hecksher Ohlin theory on international trade can explain
trade. (inter-regional and international, only inter-regional, only
international, none of the above)
10. Commodity X is capital intensive, when in its production capital/ labour
ratio is than Commodity Y. (greater, less, equal to, none
of the above)
2
11. Hecksher Ohlin theory cannot be applied to more than .
(several commodities and several countries, two commodities, two
countries, few countries)
12. According to Hecksher Ohlin theory, product price depends on
.
(all of the given below, only factor intensity, only factor abundance, factor
cost)
13. According to Hecksher Ohlin theory, the international trade takes place due
to difference in . (product price, labour efficiency,
advanced technology, all of the above)
14. In international trade move between nations. (commodities and
not factors, factors of production, factors and commodities, none of the
above)
15. Terms of trade are expressed as a ratio of .
(price index of exports and imports, foreign exchange receipts and
payments, FDI and portfolio investments, none of the above)
16. Terms of trade are favourable if the current index in comparison to the base
year index is . (more, less, equal, none of the above)
17. Gross barter terms of trade takes into account .
(trade items and unilateral payments, only trade items, only services, none
of the above)
18. Income terms of trade indicate increased capacity to .
(import, export, investment, none of the above)
19. Single factoral terms of trade takes into account changes in .
(efficiency of factors of production of export goods, export prices, import
prices, demand for imports)
20. Generally, the developing countries terms of trade. (suffer
from adverse, enjoy favourable, ignore, none of the above)
21. The gain from trade is maximum if the international terms of trade are .
(nearer to the internal terms of trade of trading partner, nearer to the
domestic terms of trade of importing country, equal to exporting country,
none of the above.)
22. An offer curve differs from . (usual demand and supply curves,
usual demand curve, usual supply curve, none of the above)
23. International trade increases the welfare of .
(all participating countries, only exporting country, only importing country,
only developed countries)
24. International trade results in . (all of the given below,
innovations, reduction in costs, diversifies consumption)
 3
25. Cultural changes due to international trade are .
(positive and negative, only positive, only negative, none of the above)
26. The concept of gross barter terms of trade was introduced by .
(Frank Taussig, Alfred Marshall, Francis Edgeworth, John S. Mill)
27. The concept of income terms of trade was introduced by .
(Graeme S Dorrance, Frank W Taussig, David Ricardo, Francis
Edgeworth)
28. Utility terms of trade was introduced by .
(Jacob Viner, Adam Smith, J. S. Mill, Frank Taussig)
29. The concept of offer curves was introduced by .
(A. Marshall and F Edgeworth, Adam Smith and David Ricardo, John
S. Mill and John M Keynes, None of the above)
30. Terms of trade will be favourable to a country when .
(all of the given below, its exports have inelastic demand, its imports have
elastic demand, its supply of exports is elastic)
31. The offer curve of a country is based on . (relative prices of
two commodities, price of exports, price of imports, supply of exports)
32. A country will have unfavourable terms of trade when .
(imports have inelastic demand, imports have elastic demand, exports have
elastic supply, none of the above)
33. When supply of exports is elastic, a country will have terms
of trade. (favourable, unfavourable, different, none of the above)
34. The concept of reciprocal demand was introduced by .
(J. S. Mill, J. M. Keynes, G. S. Dorrance, F.W. Taussig)
35. Reciprocal demand is expressed in terms of .
(Offer curves, supply curves, demand curves, cost curves)
36. The classical theory of international trade was presented by .
(David Ricardo, Hecksher-Ohlin, J. M. Keynes, Alfred Marshall)
37. Hecksher-Ohlin theory states that the relative factor prices in two
countries are determined by . (differences in factor
endowments, labour efficiency, technological developments, none of the
above)
38. Hecksher-Ohlin theory is also known as theory of international
trade. (modern, traditional, classical, none of the above)
40. Under type of cost difference, international trade will not take
place. (equal, absolute, comparative, none of the above)
Ans: The first option is the correct option.
4

CHAPTER - 2 : COMMERCIAL POLICY AND

INTERNATIONAL ECONOMIC INTEGRATION

MULTIPLE CHOICE QUESTIONS

1. Which one of the following is not an objective of commercial trade policy ?
(a) To preserve foreign exchange reserves
(b) To determine the rate of interest
(c) To protect domestic industries from foreign competition
(d) To maintain favourable balance of payments
2. Which one of the following is an argument for free trade?
(a) Protects domestic industries
(b) Promotes self sufficiency
(c) Helps diversification of industries
(d) Promotes efficient allocation of world resources
3. Which of the following is an argument against the policy of free trade?
(a) Does not always benefit less developed countries
(b) Protects inefficient industries
(c) Causes unemployment in the export sector
(d) Harms domestic consumers
4. Protectionist policy
(a) Encourages international specialization
(b) Promotes global production
(c) Helps prevent dumping
(d) Reduces government intervention in trade
5. Tariff rate quotas are
(a) combination of tariffs and quotas
(b) based on the value of the traded commodity only
(c) based on the quantity or volume of the quantity only
(d) low tariff rate on an initial quantity of import within the quota limit
and very high tariff rate on imports above the initial amount
 5
6. A tariff expressed as either a specific or an ad valorem rate, whichever is
higher, is known as
(a) General tariff (b) Mixed tariff
(c) Compound tariff (d) Countervailing tariff
7. Countervailing tariffs specifically aim to
(a) give preference to imports from a customs union
(b) retaliate to a tariff imposed by a trading partner
(c) neutralize the effects of subsides given to the producers in the
exporting countries
(d) counter dumping by other countries
8. A system that makes it mandatory for domestic producers to use some
proportion of domestic raw material is known as
(a) Mixing quota (b) Global quota
(c) Allocated quota (d) Import licensing
9. Which of the following is not a NTB?
(a) Voluntary export restrictions
(b) Local content requirement
(c) Administrative barriers
(d) Tariff rate quotas
10. Which one of the following NTBs prevents free movement of capital
between countries?
(a) Preferential government procurement
(b) Exchange controls
(c) Domestic subsidies
(d) Local content requirement
11. The reduction in domestic consumption due to imposition of quota results
in
(a) increase in government revenue
(b) increase in consumer’s surplus
(c) loss of social welfare
(d) increase in social welfare
12. A preferential trade area is a trade bloc where
(a) countries agree to reduce or eliminate tariff barriers on all goods
imported from other member nations
(b) countries agree to reduce or eliminate tariff barriers on selected goods
imported from other member nations
6
(c) countries agree to have a common unified tariff against non-
members
(d) all barriers are eliminated to allow free movement of goods, services,
capital and labour
13. A free trade area is a trade bloc where
(a) countries agree to reduce or eliminate tariff barriers on all goods
imported from other member nations
(b) countries agree to reduce or eliminate tariff barriers on selected goods
imported from other member nations
(c) countries agree to have a common unified tariff against non-
members
(d) all barriers are eliminated to allow free movement of goods, services,
capital and labour
14. A customs union is a trade bloc where
(a) countries agree to reduce or eliminate tariff barriers on all goods
imported from other member nations
(b) countries agree to reduce or eliminate tariff barriers on selected goods
imported from other member nations
(c) countries agree to have a common unified tariff against non-
members
(d) all barriers are eliminated to allow free movement of goods, services,
capital and labour
15. A common or single market is a trade bloc where
(a) countries agree to reduce or eliminate tariff barriers on all goods
imported from other member nations
(b) countries agree to reduce or eliminate tariff barriers on selected goods
imported from other member nations
(c) countries agree to have a common unified tariff against non-
members
(d) all barriers are eliminated to allow free movement of goods, services,
capital and labour
16. is one of the disadvantages of international economic
integration.
(a) cross-border investment flows
(b) employment generation
(c) increasing interdependence
(d) conflict resolution
 7
17. The was signed to create the EU in 1993.
(a) Treaty of Maastricht (b) Treaty of Rome
(c) Treaty of Lisbon (d) Treaty of London
18. The euro replaced the national currencies of 12 EU member nations in the
year
(a) 1997 (b) 2002
(c) 2000 (d) 1995
19. The functioning of the EU single market in governed by
(a) Treaty of Rome
(b) Treaty of Amity and Cooperation
(c) European Financial Stability Facility
(d) Treaty of the Functioning of European Union
20. The Eurozone crisis was essentially a crisis.
(a) Immigration (b) Food
(c) Sovereign debt (d) Political
21. ASEAN was formed in
(a) 1967 (b) 1945
(c) 1999 (d) 2000
22. The was established in 2015 to bring about economic integration to
create a single market in ASEAN.
(a) ATIGA (b) AEC
(c) AFTA (d) ABIF
23. The aim of ABIF is to establish
(a) Banking integration in ASEAN
(b) Food security in ASEAN
(c) Free labour market in ASEAN
(d) Customs union in ASEAN
Ans.: (1) - (b), (2) - (d), (3) - (a), (4) - (c), (5) - (d), (6) - (b), (7) - (c), (8) - (a),
(9) - (d), (10) - (b), (11) - (c), (12) - (b), (13) - (a), (14) - (c), (15) - (d),
(16) - (c), (17) - (a), (18) - (b), (19) - (d), (20) - (c), (21) - (a), (22) - (b),
(23) - (a)
8

CHAPTER - 3 : BALANCE OF
PAYMENTS AND WTO

MULTIPLE CHOICE QUESTIONS

1. Unilateral transfers . (all of the below, are unrequited transfers, are
one-way transfers, include gifts/remittances)
2. Unilateral flows in the balance of payment account refer to .
(Gifts and Grants, capital flows, visible goods flows, invisible flow of
services)
3. The full form of TRIMs is . (Trade Related Investment
Measures, trade related insurance measures, trade related investment
methods)
4. WTO was set up on . (1st January 1995, 1st June 1985, 31st
July, 1995, 1st January 2000)
5. GATS stands for . (General Agreement on Trade in Services,
General Agreement on Tariff and Services, General Agreement on
Transport and Services)
6. Autonomous capital flows other items in the balance of
payments. (are independent of, depend on, are related to, have impact on)
7. The current account in the balance of payments . (includes
merchandise trade and services, is a total of all the visible items of trade,
includes borrowings, includes autonomous and accommodating flows).
8. A deficit in India’s Balance of Trade in recent times is due to .
(all of the below, rise in price of crude oil, increase in imports, reduction in
exports)
9. Good performance on has helped India to reduce its current a/c
balance deficit in recent times. (invisible account, trade account, capital
account)
10. There is an increase in on India’s capital a/c in recent times.
(non-debt foreign investment flows, private transfers, private
remittances, unilateral receipts).
11. After covering deficits on current a/c, excess capital a/c receipts are added
to . (foreign exchange reserves, IMF account, official
transfers)
 9
12. Bank capital on India’s capital a/c includes .
(foreign currency deposits – NRI deposits, foreign exchange reserves, local
withdrawal from NRI rupee deposits, official transfers)
13. Private transfers on India’s current account include . (Local
withdrawal from NRI rupee deposits, foreign currency deposits, foreign
exchange reserves)
14. International trade increases the welfare of . (all participating
countries, only exporting countries, only importing countries, none of the
above)
15. WTO agreements incorporated proposals. (Arthur Dunkel,
Adam Smith, David Ricardo, John M. Keynes)
16. has given mandate to negotiate multilateral rules relating to
services. (WTO, World Bank, IMF, ADB)
17. Foreign direct investment is a part of . (Capital account, trade
account, current account, none of the above)
18. External borrowing is treated as flow. (Accommodative,
Autonomous, invisible, none of the above)
19. Foreign exchange reserves of India include . (All of the below,
Special Drawing Rights, Foreign Currency reserves, Reserve Tranche of
IMF)
20. The highest authority of WTO is . (The Ministerial Conference,
The Trade Policy Review Body, The General Council, The Dispute
Settlement Body)
21. The Agreement on Agriculture does not aim at . (Increasing
export subsidies, Improving market access, reducing domestic
subsidies, reducing domestic support)
22. Intellectual property rights include . (All of the below,
copyrights, layout designs, trade marks)
23. The current account balance of BoP does not include . (FDI,
services exports, unilateral transfers, non-factor services)
24. is not a part of unilateral transfers (Short term loans, gifts,
donations, remittances by workers)
25. is not a direct measure to correct BoP disequilibrium.
(Devaluation of exchange rate, quotas, tariffs, import substitution)
26. When BoP disequilibrium is chronic in nature and lasts for a long time, it is
a sign of disequilibrium. (fundamental, cyclical,
structural, monetary)
27. When disequilibrium takes place due to changes in demand pattern for
exports or imports, it is a case of disequilibrium. (structural,
cyclical, long-term, short-term)
10
28. TRIMs agreement refers to treating foreign investment at with
domestic investment. (par, premium, discount, inequity)
29. The effectiveness of devaluation depends on . (All of the below,
international cooperation, elasticity of demand for merchandise goods,
elasticity of demand for services)
30. Foreign exchange reserves of India include . (All of the below,
SDRs, Foreign Currency Assets, Gold Reserves)
31. In the past several years, India’s capital account balance was in
. (surplus, deficit, balance, none of the above)
32. Portfolio foreign investment is included in account of BoP.
(capital, current, trade, debit)
33. Expenditure switching policies to correct BoP deficit include
of domestic currency. (devaluation, appreciation, revaluation, all of the
above)
34. Tariffs and quotas are imposed on imports to correct BoP deficit are called
as measures. (direct, indirect, passive, all of the above)
35. The sum of the total export-import demand elasticity must be .
(greater than one, equal to one, zero, less than one)
36. In the past several years, India’s net invisibles were in .
(surplus, deficit, balance, none of the above)
Ans: The first option is the correct option.
 11

CHAPTER - 4 : FOREIGN EXCHANGE MARKET

MULTIPLE CHOICE QUESTIONS

1. Hedging refers to . (the covering of a foreign exchange risk,
foreign exchange speculation, the acceptance of foreign exchange risk,
interest rate arbitrage)
2. Under flexible exchange rate system, exchange rate is determined by
. (the demand and supply of foreign exchange, Central Bank
intervention, the price of gold, none of the above)
3. Functions of forex market include . (all the below, provision
of facilities for funds transfer, trading, short term finance)
4. Which of the following is not a function of the foreign exchange market?
(Import and export of goods and services, transfer of purchasing power,
coverage of risk, provision of credit instruments and credit)
5. helps to equalize the exchange rate in all part of the foreign
exchange market. (speculation, interest arbitrage, hedging)
6. Forward market in foreign exchange refers to market. (Short
and long run, a short run, a long run, a spot)
7. Speculation in foreign exchange market refers to . (accepting
risk to make profits, hedging, interest arbitrage, none of the above)
8. India adopts exchange rate system. (managed flexibility, fixed
exchange rate, flexible exchange rate, none of the above)
9. The rate at which the foreign currency is exchanged at current rate is called
rate. (spot, forward, arbitrage, none of the above)
10. Vehicle currency is . (a standard internationally accepted
currency, a currency of IMF, a currency issued by RBI, none of the above)
11. Arbitrage refers to purchase and sale of an asset . (at low
price in one market and its simultaneous sale at higher price in another market,
at high price in one market and its sale at lower price in another market,
purchase and sale at the same price, all of the above)
12. is not included in the wholesale foreign exchange market. (small
investor, RBI, FII, Commercial Bank)
13. Speculators deal in . (spot and forward exchange rate, only
spot exchange rate, only forward exchange rate, none of the above)
12
14. Hedgers enter foreign exchange market to . (cover risk, earn
margin, speculate, none of the above)
15. Foreign exchange market is a place where . (various foreign
currencies are exchanged, only foreign tourists exchange currencies, only
exporters convert the foreign currencies, only importers convert the foreign
currencies)
16. Flexible exchange creates in importers and exporters.
(uncertainty, confidence, safety, none of the above)
17. is not a defect of flexible exchange rate. (Stability in
international monetary system, speculation, structural unemployment,
discourages investments)
18. Under exchange rate system, the exchange rate is
determined by market forces. (flexible, fixed, managed float, all of the
above)
19. Under exchange rate system, the central bank of a nation
intervenes in exchange rate determination. (managed float, fixed, flexible,
none of the above)
20. Fixed exchange rate system, the exchange rate was . (stable,
unstable, fluctuating, all of the above)
21. The modern foreign exchange market operates under rate
system. (floating, fixed, highly managed float, all of the above)
22. In exchange rate determination, the first currency in the currency pair is
called currency. (base, soft, negotiable, hard)
23. is a feature of foreign exchange market. (operates 24 hours for 5
day in a week, operates 24 hours for all 7 days in a week, operates 365 days in
a year, none of the above)
24. is not a feature of foreign exchange market. (Limited
Geographical Coverage, Highly Liquid Market, Huge Value Market, None
of the above)
25. enables an investor to earn high returns while minimizing
capital risks. (Leverage, Liquidity, Reserves, all of the above)
26. Transactions in foreign exchange market have become quicker due to
. (advanced technology, Government Initiatives, IMF, World
Bank)
27. Society for Worldwide Interbank Financial Telecommunications
(SWIFT) is a communication network that facilitates 24-hour
secure international exchange of payment instructions between banks, central
banks, multinational corporations, and major securities firms. (Global,
Local, National, None of the above)
 13
28. The function of foreign exchange market that helps in clearing
international transactions is known as . (transfer, credit,
hedging, speculation)
29. Provision of documentary bills of exchange in international payments is an
example of function. (creation of credit, transfer,
speculation, hedging)
30. The function of foreign exchange market, which is concerned with fixing
of forward exchange rates is known as . (Hedging,
speculation, arbitrage, transfer)
31. The foreign exchange rate of a nation is influenced by .
(all of the below, speculators, hedgers, arbitrators)
32. The foreign exchange rate of a nation is influenced by .
(all of the below, BoP, Interest rate, speculation)
33. is not a feature of spot exchange rate. (Clearing of payment takes
place fairly long period, demand and supply of foreign currency determines
the rate, current exchange rate, all of the above)
34. The demand for foreign currency arises due to . (imports,
exports, investments from abroad, none of the above)
35. The supply of foreign currency is on account of . (exports,
imports, investments abroad)
36. rate is the rate at which a nation’s currency is exchanged for some
other nation’s currency. (Exchange, Transfer, Negotiating, All of the above.
37. The demand curve for foreign exchange slopes indicating that
when the exchange rate of foreign currency falls, the demand for it
increases. (downwards, upwards, sideways, none of the above)
38. The supply curve for foreign currency slopes indicating that
when the exchange rate of foreign currency increases, the supply of it
increases. (upwards, downwards, sideways, all of the above)
39. If there is more demand for foreign currency, the foreign currency will .
(appreciate, depreciate, nil effect, none of the above)
40. When the demand curve for foreign currency, intersects the supply curve, we get
exchange rate. (equilibrium, premium, discount, par)
41. Theory of purchasing power parity . (neglects capital account
transactions, includes transportation cost, includes prices of non- traded
goods, applies only in short run)
42. Purchasing Power Parity Theory was propounded by . (Gustav
Cassel, David Ricardo, Adam Smith, None of the above).
43. Purchase of foreign currency by the monetary authority the
appreciation of domestic currency. (prevents, aggravates, leads to)
14 44. is monetary authority’s intervention to prevent forex fluctuations through M Policy instruments. (Sterilized
Intervention, bank rate, open market operations, Un-sterilized intervention)
45. is monetary authority’s Intervention by purchase/sale of foreign current to prevent fluctuations in foreign
exchange. (Unsterilised Intervention, Sterilized intervention, bank rate policy)
46. of goods results in demand for foreign currency. (Import, export, sale in domestic market, none of above)
47. results in supply of foreign currency. (Unilateral receipts, unilateral payments, investment abroad, none of above)
48. Equilibrium exchange rate is determined when . (the demand curve for foreign currency intersects with supply curve,
demand curve shifts upwards, supply curves slopes downwards, none of the above)
49. Exchange rate between two currencies is based on . (purchasing power of two currencies, economic
development of the two nations, political stability in the two countries, none of the above)
50. Critics of Purchasing Power Parity theory state that it has limited application for countries. (Large, small, medium-sized, none
of the above)
51. PPP Theory considers that goods in different countries are . (Identical, differential, superior, non of the above)
52. PPP Theory ignores capital flows on account of . (capital account, trade account, current account, none of the
above)
53. There is a relationship between demand for foreign currency and the exchange rate. (inverse, direct, straight, positive)
54. There is a relationship between supply of foreign currency and the exchange rate. (direct, inverse, negative, indirect)
55. LERMS was introduced in India in . (1992, 2000, 2002, 2012)
56. Under managed float, the central bank of a nation intervenes to
foreign currency. (purchase and sell, only purchase, only sale, none of the above)
57. Under flexible exchange rate system, the exchange rate is determined by . (market forces, central bank, commercial banks, none
of the above)
58. Under IMF, the exchange rate system was . (gold standard, currency board system, dollarization, none of the
above)
Ans: The First Option is the correct option. 15
 Question Option A Option B Option C Option D
……… server as an index of gains international
16
from trade terms of trade gains from trade trade none of (A) b c
…...gains are measured over
a period of time dynamic static indirect direct
gross barter terms of
…... is also referred as trade net barter terms income terms of
commodity terms of trsde of trede trade utility of trade
….. Gains also referred as
commodity thrms of trade static dynamic international domestic
reciprocal demand reciprocal
an offer curve is also known as the inverse curve curve reverse curve supply curve
the comparative cost theory is first
systematically formulated by the
English economist in his principal j . S. mill f. w. taussig g.v. haberler david ricardo
of political economy and taxation (
1817 )
theory of
the modern theory of the factor absolute cost advantage comparative heckscher -ohlin
endowment is also known as …. theory differences in cost theory none of (A) b c
protection policy is advocated export
against the practice of domping devaluation promotion deflation
 17
the gatt generally prohibits the use
of …tariffs with the exemption of
the british commonwealth
preferences prohibitive protective retaliatory preferential
a specific type of quota
thatprohibits all forms of trade is voluntary export
an ….. restraint ( ver ) embargoes countertrade immigration
the .. Acts as the executive of the council of the european european
european union european parliament european union commission central bank
the referendum for BREXIT was 1st january
conducted on …. 23-Jun-16 23-May-16 2016 01-Apr-16
capital
…….. Includes only visible items balance of payment balance of teade current account account
……..is a fiscal device which may be
used for correcting an
unfavourable balance of payments export
position import quotas import substitution promotion tariff
………. Makes export of goods licence quota
cheaper and imports dearer devaluation import prohibition system tariff
world trade
…….acts as a watchdog of organisation (
international trade gatt world bank WTO ) none of these
18
under …..all countries have to
provide for protection of product
patents from january1 1995 TRIPS TRIMS GATS WTO
THE….IS A PLACE WHERE FOREIGE foreign
CURRENCY IS PURCHASED AND exchange
SOLD stock market forward market bullion market market
most exchange rates use the ….as
the base currency us dollar british pound euro japanese yen
the purchasing power parity is
useful in explaining the relationship exchange
between….. spot rates arbitrage forward rates rates
a…….. Is the market in which
currencies are bought and sold now
but delivery is done sometimes in exchange
the future foreign exchange market commodity market forward market rates
a…….. Policy is generally helps to
reduce the likelihood of global
trade conflicts fixed exchange rate flexible exchange rate free trade protectionism
according to ricardo international equal difference
trede is beneficial under absolute cost comparative cost in cost
 19 both within
ricardian theory assumes perfect between the and between
mobility of labour within the country countries the countries
there is no qualitative labour is
comparative cost theory is a static and qualitative change homogeneous within there is not
theory because according to it in inputs the country ransport cost
ricardian theory measures cost of all the
comparative cost in terms of money labour days inputs
labour differ in
labour is homogenous labour is efficiency
and of same efficiency in homogenous within within the
ricardian theory assumes that all the countries the country country
only to
ricardian comparative cost theory more than two developed
can be extended or pooled to commodities only two countries countries
H o .theory can explain inter- regional trade international trade both a and b
x REQUIRES
capital /labour ( K/L BETTER
commodity X is capital intensive if )RATIO IS GREATER X requires better technology then
in its production THEN y technology then Y Y
commodities
factors of production both factors and move between
move between the commodities move the counties
in international trade countries between the counties instead of
20 factors

according to H .o . Theory the

international trade takes place due difference in product better
to the difference in labour efficiency price technology
according to H .o . Theory product
price depends on factor intensity factor abundance factor cost all the above
can be
extended to
many
commodities
H.o. theory cannot be two and many
applied to more than two countries commodities countries
MUTAL DEMAND OF
TWO COUNTRIS TO
RECIPROCAL DEMAND IS EACH OTHER S GOOD mutuel supply price of exports
the gain from trade is maximum if nearer to the domestic nearer to the internal equal to
international terms of trade are --- terms of trade of terms of trade of exporting none of the
an offer curve importing country treding partner country above